Analyze the potential markets for your business. This needs to be more than mere guesswork and involves doing accurate and intelligent research. How old are your potential customers? What do they do for a living?
Is your product or service attractive to a particular ethnic or economic population? Will only wealthy people be able to afford it? Does your ideal customer live in a certain type of neighborhood or area? Establish the size of your potential market. It’s important to be as specific as possible in regard to your market and your product. If you want to start a soap business, for example, you may believe that every dirty body needs your product, but you can’t start with the entire world as your initial market. How many children in the United States are currently under the age of eight?
How much soap will they use in a month or a year? How many other soap manufacturers already have a share of the market? How big are your potential competitors? What will you require to get started? Whether you want to buy an existing company with 300 employees or start your own by adding an extra phone line to your home office desk, you need to make a list of the materials you’ll need. Some may be tangible, such as five hundred file folders and a large cabinet in which to store them all.
If you’re going to build a better mousetrap, you may have constructed a prototype out of used toothpaste tubes and bent paperclips at home, but you’ll need a sturdier, more attractive model to show potential investors. What exactly will your mousetrap look like? Do you require money for research and development to improve on your original toothpaste tube and paper clip construction? Research possible locations for your business. Call a real estate broker and look at actual retail spaces in the neighborhood where you’d like to open your restaurant. Make a chart of the most expensive and least expensive sites by location and square footage.
Then estimate how much space you require and how much money you’ll need to allow for rent. Make a list of all the tangible and intangible resources you need to get your business going. The total estimated price of all of these items will become your start-up cost whether you’re buying highly sophisticated computers or simply installing a new telephone line on your desk. If there’s any item in your estimates that seems unreasonably high, research other alternatives. Put yourself in the shoes of potential investors. If I were going to invest X amount of dollars into a concept or idea, or even a product, what would I want to know? Gather as much helpful and credible information as you can.
Depending on your product, you may need to search long and hard for relevant information. Don’t lose heart if you discover some, or even all, of your ideas have been adequately covered by the market. Banks and other funding sources don’t lend money because people with interesting business ideas are nice. A business plan won’t be useful until you’re certain what your company exists for.